Jim wanted to make money from white displacement. He would not have used the phrase “white displacement;” he preferred speaking of “preferences.” After all, everyone has preferences.

The United States government makes no secret of its racial preferences. It prefers to give its business to companies run by non-whites, and that increases the value of those companies. Financial markets in this country (of the “free minds and free markets” that had long been the battle-cry of the old Chicago Board of Trade) are quiveringly alert to the weight of the government’s thumb in assessing valuations. Jim (who is both white and gentile, to anticipate curiosity on that point) concluded that the government’s racial preferences could have an impact on the value of certain assets. But how to identify the assets and profit from that increased value?

This was a novel insight for a man who had amassed a sizable fortune based on another novel insight–about the value of patents. He had seen that the government and the courts were shifting from policies that made it easy to invalidate patents towards polices that made it easier to enforce them. This was going to make patents more valuable, so, using a private equity vehicle, he bought up a lot of them at low prices and later sold them for a lot more. He even saw an abstract connection between patents and minority preferences: A government-enforced monopoly makes patents valuable; government preferences for minority companies make them more valuable.

My boss established a “diversity” business silo–with all the vagueness the term implies; we weren’t sure exactly what we were going to do–and in a brilliant move, recruited a fashionable, attractive, and articulate Muslim woman, rather than the expected black woman as our diversity czarina. Fatemeh Hall (that was her married American name) had recently arrived from Iran, and she had a matchless zeal for uplifting African-Americans in particular. She had made this her life’s mission after reading Uncle Tom’s Cabin in high school. The business elites of Chicago were desperate to recruit Muslims and show how unprejudiced they were against them. Doors opened for her magically.

Fatemeh unaccountably decided she liked me, even though I made no secret of my admittedly neutered Republicanism. Before long, I was her official mentor, and diversity initiatives were added to my portfolio. My mission was to find a way to make money from racial preferences.

In laying the groundwork for our “diversity” business silo, I learned that corporate America has undertaken white displacement seriously and efficiently, and even more so than is generally realized. However, there are hard limits to the nonsense our commercial overlords will tolerate, even in the sacred name of diversity.

Our work started, very modestly, by advising minority-owned companies on how to get contracts with Fortune 500 companies. My boss’s Rolodex of names at big companies was a great help here. The contracts were supposed to help the companies sell equity stakes. At the time, Ocean Tomo had an advisory arm and could expect to be compensated in both fees and warrants if a client went public. However, IPOs seemed to me to be of limited profit potential because the companies would need to maintain their minority status if they were going to keep getting Fortune 500 contracts. Going public and selling stock would mean they would no longer be minority owned. But this approach was a way for us to get into the game.

For the next few months, I spent perhaps 10 hours of my workweek in minority business conferences graced with high-profile speakers and earnest, usually white, and surprisingly senior corporate executives. Fatemeh proved to be a tireless conference organizer and a genuine political genius, cultivating an alliance with Emil Jones, the African-American Illinois Senate President at the time. Emil, whose career obsession was getting black men more construction jobs, managed to connect us to an endless pipeline of aggrieved and ambitious minority business owners.

Because Fatemeh had readUncle Tom’s Cabinand cultivated Senate President Jones, our minority contractor pipeline was predominantly black. In Chicago at least, it seemed that black businesses disproportionately cashed in on Fortune 500 minority preferences, but a few Hispanic companies attended our conferences. Female-owned businesses get preferences as well, and we got a smattering of them.

It’s my impression, however, that white female-owned businesses can be competitive without preferences, and thus tended to under-use the preferences available to them. This may not reflect intrinsic nobility as much as it does the fact that preferences are, paradoxically, not without cost. Time must be spent on forms and propaganda and interaction with more than ordinarily useless bureaucrats. Competent white women might have thought the return was not worth the cost. For the incompetent, of course, preferences represented the best potential investment of time.

When it came to pitching minority suppliers to major companies, I had been hopelessly stuck in the 1980s. I expected to be dealing with low-level minority bureaucrats, a limited budget, and much eye-rolling from senior management. Things are very different now. Relentless, ruthless intelligence has gone into minority supplier programs. They are supported at the board level, and thus have significant input from white men.

Corporate America’s campaign of white displacement faces a serious obstacle: There are many roles minority vendors cannot fill, especially in technology. However, white vendors who cannot easily be replaced can be forced to replace their white vendors.

In other words, when it is impossible to discriminate against whites, it is possible to require those whites to discriminate against other whites. This discrimination is monitored closely. White vendors are expected to implement ambitious minority supplier recruitment programs (from templates created by the Fortune 500 customer) and are required to report progress in excruciating detail. Excuses are not accepted. (This has the collateral effect of imposing burdensome compliance costs on productive whites.)

Racial preferences thus permeate the supply chains of virtually all Fortune 500 corporations. The policies are intentional, calculated, and effective. Diversity policy is no longer formed in a corporate backwater but by the best and the brightest.

GM’s Chief Diversity Officer is a white man and a retired Navy Captain, Kenneth J. Barrett. Mr. Barrett was the Navy’s Chief Diversity Officer, and if there are medals for discriminating against whites he presumably wears them proudly.

Of course there seemed to me to be no coherent shareholder-value argument for preferring minority contractors. I am therefore not able fully to explain what I observed. It is true that market value does not invariably track intrinsic value, and by the second Bush administration, corporate Americans behaved as though minority vendors (chiefly black vendors) had genuine value. Perhaps this reflected the market’s perception that Republicans, who never cut back affirmative action, are followed by Democrats who always ratchet it up. Perhaps it reflected a belief that corporations can be punished for not preferring blacks, and will never be punished for displacing whites. All I can do is report what I saw, and offer guesses for the reasons behind it.

I, of course, found this system appalling. I was in an environment in which the only permissible criticism of any diversity initiative was that it was insufficiently radical. Fatemeh had a stock speech for every meeting. She would hold up a pen and say: “If you buy this pen from a white guy, what have you got? You’ve got a pen. If you buy this pen from a minority, you’ve got a pen plus diversity.” Sometimes she would say “diversity points.” Her minority audience would beam with delight. They deserved the business because they offered more to the buyer than a white man could offer. I always wondered whether some satirist had scripted this bit for Fatemeh. I certainly hadn’t written it and I did most of her writing. Yet I never dissuaded her from making the pen speech, since I found it delightfully and unabashedly absurd.

The quantitative-minded among you will naturally ask how much more the pen is worth if it is sold by a minority vendor. Corporate American quantifies everything so there are undoubtedly formulas for the amount a company will invest, in terms of increased costs and lower performance, in order to corral a minority vendor. These formulas are guarded closely and regarded as trade secrets.

Having done a bit of actuarial work in an earlier life, I tried to model the cost/benefit calculation. Assume a company like GM has the option of buying a special insurance policy to cover the payout on a catastrophically large racial shakedown. If what GM pays for diversity in the form of higher prices and lower performance is less than the reasonable premium for a racial incident insurance policy, preferences are arguably rational. Only arguably rational, however, since even the most blood-thirsty preferences do not guarantee a favorable outcome in a “racism” lawsuit, and the creativity of the people who manufacture racial incidents is not to be underrated.

I suspect that the internal models for valuing minority preferences include variables for their impact on brand value because, seemingly absurdly, a vigorous white displacement policy appears to burnish the value of the corporate brand even among displaced whites. Readers who doubt this should check Vault.com and other “insider” reviews of businesses; a “pro-diversity” policy is thought to make a company a more desirable employer, even presumably for pre-displaced whites.

Despite the fun of running numbers and spinning rationales there was something fundamentally humiliating about calling for discrimination against whites. I also began to feel acute discomfort on another front. Our czarina was beguilingly charming, but as I spent more time with her I learned that she was very much a mainstream Muslim. For example, she insisted that literal impalement was the proper sanction for ridicule of the Prophet. At the time, my religious views made Christopher Hitchens look Amish, but not only was I obliged to demand more and more radical racial preferences, I was forced into professions of reverence for Islam. I felt like a broken-spirited POW, broadcasting an endless stream of lies scripted by a totalitarian enemy.

I began socializing with upper class blacks, occasionally from the right end of the Bell-curve. The admonition to cultivate successful black friends was a neglected nugget from John Derbyshire’s version of the Talk and his prescience is uncanny. A black male friend is positively aphrodisiacal (Afrodisiacal?) for white female urban professionals. This was the sole consolation of a degraded period.

Of course, my boss Jim was not primarily interested in uplifting blacks. Uncle Tom’s Cabindid not have the same life-changing effect on him. His liberalism was cheerfully exploitative. He wanted a way to turn mass psychosis into profit and, for a time, we both thought we had found one.

Despite massive preferences, the performance of black vendors is–let us say–volatile. The only permitted explanation for this was that they lacked access to capital. Because blacks had been discriminated against for millennia, they lacked the contacts, family resources, expertise, and relationships to get enough funding for their businesses. This was considered so obvious as to be beyond discussion.

We started holding “Access to Capital” seminars in which we trained blacks to talk to bankers and prepare supporting documentation, such as balance sheets. However, a Fortune 500 customer or a major government subdivision might have hundreds or even thousands of minority vendors, and getting bank loans for them one at a time seemed inefficient.

I finally hit on the idea that was going to make money for us. It is a well-known financial technique–actually, as it would turn out in the 2008 crash, a dangerously over-used one–called securitization. The concept is to create marketable securities based on high-quality contractual cash flows.

Say our black vendor has a contract with GM that should be good for steady payments that added up to, say, $1 million over five years. The idea is to sell the right to that income stream on the open market. An investor would pay a discounted lump sum, say, $700,000 today, the intermediaries would take their fees, and the minority vendor would get the rest–up front, right now. He would then, presumably, invest the money in added productive capacity.

The market would require that the vendor contracts be with reliable payers, and in our case they were with solid Fortune 500 companies. The contracts would have to be made attractive–guaranteed durations, for example–and they would have to be bundled to reach the $50 million level before an issue would be really attractive to the markets. Fortunately, we already had ready-made pools of minority suppliers whose contracts could all be spiffed up simultaneously and bundled together in the form of bonds.

There is an argument to be made that this was not a very good deal for the minority supplier. He was borrowing money on the strength of future income, but because of the discount rate, he was getting a good deal less than if he patiently fulfilled the contract. But the attraction was the pile of cash up front, not the deal’s internal rate of return. It was like a pay-day loan. You are going to get a paycheck for $400 in two weeks, and the loan shark offers you $340 today in exchange for the entire $400 in two weeks. You’re paying an effective annual interest rate of almost 400 percent, but you get the money today.

The deal for the minority vendors wasn’t quite that bad, of course, and there was no other way they were going to get a pile of cash, so they were mesmerized from the outset. It was astonishingly easy to sell our minorities on accepting large piles of cash; in short order they focused on nothing else.

The other thing that naturally occurred to us was the potential for moral blackmail in marketing the bonds. What institutional bond-buyer wouldn’t want to load up on diversity-bonds? The minorities themselves were so distracted by the prospect of that immediate pot of gold that they wouldn’t notice the high effective rate of interest they were paying. That high rate would mean a decent return for the bond-holder, with the added moral sheen of a minority-friendly investment.

It seemed to us that my idea had a lot going for it. It would supply growth capital for minority companies in a way that did not dilute their precious minority-ownership status through a public offering on the stock market. My CEO was quite pleased by the concept. It was impossible for Fatemeh to understand financial concepts, but she was pleased by all the excitement and attention the idea was getting (to be more precise, all the attention she was getting, which was considerable).

For weeks thereafter, I was hip-deep in rhetoric about “access to capital” and, even more misleadingly, minority vendor growth rates. You could put together tables suggesting that the rate of growth in spending on minority vendors since, say, 1983 represented a Silicon-Valley-type opportunity. Never mind that this was not a function of increased minority-vendor competence but of the government thumb pressing harder and harder on the scale. Throw in mumbo jumbo about “high-yield/low-beta” and you had the makings of a successful alternative investment.

Of course, like Albert Speer writing from Spandau, I must confess now that I enjoyed moments of lucidity. One of the members of my team had been a senior member of the JP Morgan Enron deal team. He was based on the East Coast and had the job of actually structuring our Rube Goldberg mechanism.

He would fly in for sloshy dinners, where I ribbed him that few professionals had two opportunities single-handedly to destroy the American economy within a five-year period, and that he’d better make this one count. He would then speculate in more and more horrific yet somehow hilarious detail about the infrastructure consequences of minority contractor growth. Yes, we were bad, but this is how men sometimes talk in the capital markets. After two drinks they revel in their cleverness and their parasitism.

The City of Chicago awards hundreds of millions worth of minority vendor contracts every year, and wanted to be the test case. We lined up Fortune 500s and eager borrowers, but there were many layers of sign-offs before we could launch.

In Chicago there is a particular law firm that is not the best or biggest law firm in the city (though they are easily in the top ten in both categories) but that nonetheless dominates securitization. I decline to identify the law firm out of a healthy respect for their litigation department. At any rate, they were the final gate-keepers on the deal, and I thought we had a stacked deck. The partner in charge of their securitization practice was: (a) female, and (b) a prominent fund-raiser for Barack Obama’s 2004 Senate campaign. I found myself on a conference call with that partner, my Enron expat, and Fatemeh. We went through our unstoppable pitch about how we could get “5-7x” (a lump sum of five to seven times the annual contract revenues) for our minority vendors. She stopped me.

“So the goal is to get them a pile of cash upfront?” This was easier than I’d anticipated. “In a word, yes.”

In the next moment, I heard the voice of the market itself; which may as well have been the voice of God.

“I am not going to hand hundreds of millions of dollars to these scumbags.”

Fatemeh momentarily went into catatonia. I was blindsided. I had never before heard anyone speak so candidly about preferred minority vendors. But in a moment, it was blindingly obvious. Most of the minority vendors were not really entrepreneurs interested in building businesses though “access to capital.” They were looking, quite literally, for a pay-off. Hand them the pay-off up-front and the vendors would disappear, or the money would disappear, or both. The markets, even in the form of this cultural Marxist, intuited this fundamental reality.

Fatemeh recovered sufficiently to gasp that the partner had referred to minorities as “scumbags.” The partner, in a way that would have been overwhelmingly refreshing had it not dashed my short-term career hopes, did not back off. There was little more to say; the conversation ended. The project was still-born. There were many other lawyers in the city of Chicago, but in this most political of cities, to make a new kind of deal work, we needed the green light from this lawyer from this firm, and she courageously withheld it. She is an unsung heroine of the bond markets.

In my view, the lesson from this episode is that what race realists mistake for elite psychosis about minorities is actually elite cognitive dissonance. They chant the mantra that minorities are wonderful, irreplaceable, and invaluable. Yet the persistence of the “access to capital” problem suggests that somewhere out there is a core rationality that resists reprogramming. At some level, the markets realize that giving these darlings a lot of money is not a good investment.

We took a run at one or two other ideas including the deliciously conceived “diversity-linked-notes.” I won’t go into detail, but the idea of “linked notes” is to hedge against a known risk. In our case, it was the risk of losing the benefits that come from diversity. However, in order to engineer financial protection against loss of a valuable asset, the asset has to be valued. We had to know how much diversity was worth.

CFOs squirmed trying to articulate the positive balance sheet impact of diversity. It was funny watching them; after such meetings, an increasingly cynical Fatemeh would laugh uncontrollably. She was starting to understand how America worked.

We kept running into the same wall: Corporations loved minorities; the marketplace hated them. I suspect the dichotomy was due to differences in who gets compensated. Corporate actors could expect bonuses for increasing minority participation; financial gatekeepers anticipated losses on investments in minorities.

Fatemeh was jettisoned in relatively short order after it became clear we couldn’t make money on diversity, but this was the best thing that could have happened to her. She formed her own conference company, which extorted large sums from Chicago-based corporations to hold pro-minority Nuremburg rallies. She fulfilled at least one lifetime dream by snagging Bill Clinton to speak at one of her conferences. Harriet Beecher Stowe was unavailable. My Enron expat was eventually accepted back into the fraternity of structured finance.

Moral of the story: There will be limits imposed on diversity mania whenever the vital interests of our commercial overlords are threatened. Thank God, the bond markets will be protected.

Readers may argue that displacing white employees and white contractors is not rational, but there is another way to look at the costs of diversity. The markets may have simply decided that there will be no decrease in profits if whites (and presumably Asians) are worked harder and paid less.

I suppose, on balance and in context, this is good news. At the very least, our doom will be deferred for some time to come.

Mr. Bloch was a founding Managing Director of Ocean Tomo and Managing Director for Johnson & Higgins Insurance Brokers. He has four issued United States patents covering financial methods and products and has lectured and published extensively.